Handling customer demand changes is probably one of your biggest daily challenges. It feels like your customers are asking the impossible: dropping in past-due demand and penalizing you for not delivering it on time, pulling demand inside lead time and asking why later deliveries were delayed, and pushing demand out while wondering why you didn’t turn on a dime.
DemandLine is made to help with managing customer demand changes. In order for it to work as effectively as possible, you need to know how to respond to those changes. This document presents what Robot Morning has learned about one of the most common approaches: blocking changes inside lead time.
Demand is data from a customer that is used by the customer to communicate when, what, and how many of something they want you to deliver. Demand must have these properties:
- Has an item code (part number)
- Has a due date
- Has a quantity
Using this definition, a release on a purchasing contract is demand but a line on that same purchasing contract is not demand because it does not have a due date. Some purchasing contracts may have lines without releases; in that case the line is demand because it has a due date. The location of the due date determines which record is demand.
Firm Demand is demand that
- Is associated with a purchasing contract (i.e. a PO, Blanket, LTA, or similar)
- Has a status of FIRM
Planned Demand is demand that
- Is associated with a purchasing contract (i.e. a PO, Blanket, LTA, or similar)
- Has a status other than FIRM
- Does not have a status that is CANCELED, TERMINATED, or similar
Forecast Demand is demand that
- Is not associated with a purchasing contract
Demand Schedule is the full set of demand data from a customer.
Drop-In Demand is demand that is added to your customer's demand schedule inside of your part lead time. It adds quantity to the demand schedule.
Drop-Out Demand is demand that is removed from your customer's demand schedule outside of your part lead time. It removes quantity from the demand schedule.
Pull-In Demand is demand that was in your customer's demand schedule and was moved to an earlier due date. It does not change the quantity in the demand schedule.
Push-Out Demand is demand that was in your customer's demand schedule and was move to a later due date. It does not change the quantity in the demand schedule.
There are two principles that are key to handling customer demand changes.
Principle: you own your production schedule
This one is straightforward: you decide what you are going to make and when. Tools like MPS, MRP, and APS can help you streamline your decisions, but your schedule is up to you.
It's common for companies to put their MPS, MRP, and APS tools into a set-it-and-forget it mode. Be careful: doing so promotes thinking that your production schedule is subject to the whims of your customers' demand and causes people to forget that it's your responsibility.
Principle: your customers own your order book.
This can seem counterintuitive. Your order book is in your ERP. You have to do the data entry. Don't you own it? The answer is no: your customers own your order book. Customers decide what they want, when they want it, and when they communicate that to you.
When we see companies that manipulate the demand coming from their customers before they enter it into their order book, that company is not holding to the principle that they own their production schedule. Instead of holding to that principle, they're trying to use their order book to wrestle their production schedule into doing what they want. The goal is correct, but the method is not.
Practice vs. principles
Think of how online vendors like Amazon operate. Amazon does not tell me when I may wish to have a product delivered nor do they keep me from ordering active items. Amazon tells me when they will deliver what I've ordered. I own my orders in their order book and they own their schedule.
Practices to look out for at your company:
- Are you changing customer demand before you enter it into your order book?
- Are you refusing to enter some customer demand into your order book?
- If you are using MRP or APS, are you allowing it to make changes to your production schedule inside lead time without review?
If you answered yes to any of the above, you are probably not sticking to the principles.
Handling Different Types of Customers
Customers who don’t support demand change acknowledgments
Many customers send demand changes to you with no way to acknowledge them. They do so via email, phone calls, even their portals; usually without warning. A firm demand record that was well outside of your lead time will jump inside lead time and vice versa.
If your first impulse when dealing with these customer demand changes is to hold and approve every one of them, you're in good company. Many a supplier has wished they could throw unreasonable demand changes back over the fence to make their customers deal with them.
Here's the secret: you can. But you can't do so by holding demand changes for review.
Before we get into how to throw demand changes back over to your customer, we need to talk about the problems caused by holding demand changes for review.
Holding demand changes for review causes a high volume of low-value work. If you make more than a few parts for a customer, that customer can overwhelm your ability to review and approve them. That overwhelming change volume leads to misses that cause bad production schedules. If you fail to process a demand change, your production planners will not see them and cannot adjust your production schedules appropriately. Those misses also cause negative impacts on shipping. Your shipping department may spend time packing product that the customer will not accept due to a push-out or drop-out. In response, your shipping department may train their staff to check customer portals before packing product, slowing down your shipping process and requiring extra staff. Your shipping department may also miss inventory that you could ship because they are unaware of a pull-in or drop-in.
All of the above are reasons why you shouldn't hold demand changes for review when a customer doesn't support demand change acknowledgments. What should you do instead?
First, know that customers who don't support demand change acknowledgments treat due dates as prioritization values, not as true due dates. This means that they are using due dates to indicate the order in which they want you to ship product to them. A customer who issues a drop-in with a due date in the past is not telling you that you are late; they are communicating that they would like you to ship that product to them before demand with a later due date.
Second, remember that you own your production schedule. Do not change your production schedule unless you can support the customer's new prioritization.
Now for how to throw demand changes back over to your customers.
DemandLine sends commits to your customer based on your production schedule. If you maintain your production schedule, DemandLine will generate commits that match what you are actually producing without regard for your customer's demand changes. This is analagous to Amazon giving you a fixed delivery date even though you may wish to receive your order sooner. Your customer may get in touch with you to ask you to improve your commit. If they do so, understand that you are in the driver's seat in the conversation. If you can tighten your production schedule, discuss expedite fees. If you can't tighten your production schedule, stand firm and don't make the change.
If your ERP software supports it, master-plan at least your top-level finished goods in order to prevent your ERP from making changes to those parts when your customer changes the order book. Have regular MPS reviews to decide if you want to change your master plan in response to your customer's changes.
What to do when your customer measures on-time delivery
Some customers who don't support demand change acknowledgments may also measure your performance based on on-time delivery. This is a no-win situation and can be intensely frustrating. Here is what to do in response.
- State to your customer that you cannot be held to demand changes that you cannot acknowledge
- Use DemandLine's Load Variance and Schedule Comparisons to demonstrate demand change history to the customer
- Keep records on how well you execute to your production schedule (i.e. how well you complete production against your target completion dates)
The last two are the most effective way to counter on-time delivery metrics. If you can show that a) you are effective at meeting your own production schedules, and b) your customer makes demand changes that violate lead time, you will be in a strong position to demonstrate that the customer's on-time delivery metric is reflecting the customer's demand volatility rather than your delivery performance.
Allow demand changes in without holding them; control response by being selective about how you change your production schedule.
Customers who support demand change acknowledgments
Few customers support demand change acknowledgments. For those that do, take these steps:
Review firm demand changes using the method provided by the customer; this will usually be a portal showing the changes
Default to rejecting the demand changes unless your production schedule absolutely can support a change
Using AXON, DemandLine will pull the existing due date on a release until you approve a new one. In the future, DemandLine will provide an interface for you to review and approve changes. Until that feature is released, use the method provided by the customer.